"I don’t fault anyone for taking some money off the table here. The stock market is not cheap," warns one portfolio manager as valuations that have been above historical averages for months are being pushed higher even as revenue and profits decline. "The correction didn’t really solve a whole lot," notes Leuthold CIO Doug Ramsey - whose bearish research foreshadowed the U.S. stock market’s first correction since 2011 in August - warning, as Bloomberg reports [5], that "you have all the same underlying market fissures in place, yet they will have lasted another six months," forecasting the S&P 500 will be 20 percent to 25 percent lower in 2016 from its record high in May of this year.
The rebound that has lifted equities since August doesn’t mean the mispricings that drove the rout have gone away. As Bloomberg reports, [5]
If anything they’re worse, according to the chief investment officer of Leuthold Weeden Capital Management LLC, who says valuations are higher than when the selloff began because of deteriorating revenue and profits.
The Standard & Poor’s 500 Index is trading for 1.8 times sales, about where it was in August, while industrial stocks last week were priced at 20 times earnings, the most in more than a decade.
This is no message from a permabear. [5]
Ramsey correctly called the broad rally in stocks that started in 2011.
His call now that the S&P 500 will be 20 percent to 25 percent lower in 2016 from its record high in May underscores the concerns many have about the strength of the economy and the ability of companies to boost earnings, even with the unemployment rate having fallen to the lowest level since 2008.
“The correction didn’t really solve a whole lot,” Ramsey said in a phone interview. “You have all the same underlying market fissures in place, yet they will have lasted another six months.”
...he warned in early August that the “next big move in stocks should be down,” citing weakening breadth.
“I’m the wounded bear up in the north country,” said Ramsey, who until 2014 was one of the staunchest advocates for the 6 1/2-year old bull market. “But I still think the odds are very high that the top was in May. I still think we’re looking at a cyclical bear market.”
Valuations that have been above historical averages for months are being pushed higher as revenue and profits decline, Ramsey said.
“Underneath the surface, there are lingering concerns over the overall health of the economy. There’s still a lot of uncertainty out there.”
Finally, we leave it to another manager to sum up...
"It’s going to be difficult for companies to engineer higher earnings without that stronger GDP growth rate,” said Mangan of James Investment Research in Xenia, Ohio, which oversees about $6.4 billion. “I don’t fault anyone for taking some money off the table here. The stock market is not cheap.”


